How To Invest In Stocks (5 Step Guide)
Are you interested in learning how to invest in stocks? Before you consider stock investing, it’s important to have a better understanding of the market itself.
What is stock market trading? The stock market is a source from which companies can raise funds. Investors can buy partial ownership – or shares – in companies to not only benefit the business, but also grow their own personal wealth.
There are two different sectors of the stock market. These are simply known as the primary market and the secondary market. Investors should consider both when buying stock.
What Is the Primary Stock Market?
When a business decides to go public, it can enter the primary stock market. This is where the company is registered to issue shares to the public for raising money. In most cases, companies reach the stock exchange through the primary stock market.
An Initial Public Offering (IPO) is available when the company is selling shares for the very first time. Once this is in place, the company officially becomes public. During this process, the business will have to provide information regarding its finances (and much more).
What Is the Secondary Stock Market?
If you’re just learning how to buy stock or want to learn how to invest in the stock market properly, the secondary market is a great place to start. This is where businesses that are already listed on the stock market are traded through buying and selling by investors.
Generally, these transactions are completed through a broker. One investor will buy shares of a company from another investor at fluctuating prices. These prices vary over time depending on a variety of factors, including:
- Supply and demand: When more people want to buy a specific stock, the price goes up. However, if more people are trying to sell, the price will go down.
- News: Negative news reports can drastically affect a company’s share prices. Positive news regularly influences people to buy more of its stock.
- Earnings reports: The more money the company makes, the more expensive their shares will become.
- New products: When a company receives great reviews and high sales reports for a new product, their stock will generally rise.
- Unfortunate occurrences: For example, utility and insurance stocks will drop off if there is a natural disaster or severe storm.
Recognizing the impact of these factors before they happen is the best way to build your wealth through the stock market. Unfortunately, this isn’t always the easiest thing to do. When stock prices are rising or falling, you can earn huge gains or, conversely, face big losses.
How to Invest in the Stock Market: The Basics
Are you a “DIY” individual or would you like someone else to manage your investments for you? Depending on your answer, you have different options when it comes to investing.
It can seem intimidating at first, but it’s really not that difficult. Learning how to invest in stocks has helped more people generate wealth faster than just about anything else. Today we’ll walk you through an easy 5-Step Guide on How to Invest in Stocks.
1. Pick an Online Broker
Learning how to start investing in stocks starts with picking an online broker. This first step can seem daunting to some, but you only need to do it once. There are a variety of brokers to choose from. To get started, look for a broker with low – or no – fees and minimum deposit requirements. Services like Robinhood offer free trades, and it only takes a few minutes to get set up.
Here a few other services to consider for your long-term portfolio:
- TD Ameritrade Free trades. No minimum account size.
- Ally Invest $4.95 per trade. No minimum account size.
- Vanguard $7 per trade. No minimum account size.
Once you’re up and running, you can link your checking or savings account to your brokerage account for ease of access. From there, you’re set to begin investing in stocks!
2. Decide Which Stocks to Buy
Next, you’ll need to decide what stocks you want and how much risk you are willing to take. If you’re like most people, you are probably looking for stocks that can beat the market’s 7% average.
Blue Chip Stocks are a great place to start, because they are established companies with a strong track record. Additionally, blue chip stocks can help strengthen the overall stability of your portfolio. However, even when buying stocks with a strong history, they can still be overvalued at times.
Buying at a time when you’re getting a good value is extremely important. Remember, the bulk of your portfolio should be made up of investments you aim to keep for many years. Stocks that are priced appropriately should have reasonable P/E ratios. If a stock is trading at 40 or 50 times earnings, it may be overvalued compared to one that is trading at say 10 or 20 times earnings.
What to look for:
- Stocks that have outperformed the stock market consistently
- Companies that have strong earnings growth in growing industries
- Stocks that are priced well and have great volume indicators
- Stocks that pay dividends
- Competitive debt to equity ratio
- Strong company management
- Displayed stability over long periods of time
3. Decide How Much Stock to Buy
If this is your first time investing in stocks, you might consider practicing before putting your hard-earned cash on the line. Paper-trading or “practice trading” is a great way to get your feet wet. Paper trading takes place in a simulated environment, so you can learn to buy and sell stocks without all the stress.
Once you are ready for the real thing, make a list of at least ten stocks. Why ten? Diversification is key, even if you’re just getting started. By spreading out your investments over many companies, you lessen the risk from any one investment. Let’s say you have $1,000 to start with. You would aim to invest around $100 in 10 different stocks.
Now some stocks may be selling at more than $500, while others could be less than $1. This would make it difficult to evenly spread out your investment across 10 stocks. One potential solution to this is fractional shares. Many brokerages offer fractional shares, which can help investors gain access to higher priced stocks.
Regardless of whether your brokerage offers fractional shares or not, the important thing is to spread out your investments as best you can. This could mean buying 20 shares of a $5 stock, or only one share of a $100 stock.
Many investors obsess over when and how much to buy, but few people talk about when to sell. Which leads us to step 4…
4. Plan Out Your Selling Strategy
Buying stocks without a thought of selling them in the future is not a plan. It’s best to have an exit strategy and cash in on your gains after some period of time. You can always keep some of your shares while you enjoy a nice return on your investment.
In general, stock investments should not be made with any money that you need to live off of in the next few years. If a stock increases 20%, 30% or more over a short period of time, you may consider selling the bulk of those shares for a nice profit. However, if the company’s prospects align well with some of the factors we went over in step 2, this could be just one of many bull runs the stock could see in the future.
On the contrary, not every stock is going to be a winner. Many times you may be selling at a loss. In this case, we recommend setting up a Stop-Loss Order. This will prevent your losses from being catastrophic, as any investment that dips too low will trigger an automatic sell (stop-loss) order.
The most important thing is to have a plan. Know why and how you’ll sell the stock before you buy it.
And finally… step 5.
5. Start Investing in Stocks
Now that you’ve picked an online broker, decided which stocks to buy, how much of them to buy, and mapped out your selling strategy… it’s time to put your knowledge into action. Log on to your broker’s site and enter a few key data points.
- The stock ticker symbol (ex. NASDAQ: AAPL)
- How many shares you want to buy
- What price you’ll pay
There are a couple of options for that last one, but we recommend setting a limit price that’s good for the day.
This simply means you determine the maximum price that you’ll pay for the asset. If the stock trades lower than that price during the day, your order will be filled. If not, the order will be canceled and you’ll have to enter it again the next day.
Anyone Can Invest in Stocks
Buying shares of a stock is easy. Even if you’ve never done it before, you could be wrapping up your first trade just a few minutes from now. Nothing is more important to your Liberty than having the Know-How to invest for yourself. Everyone should learn the basics of stock market investing.
If you’ve never bought shares of a stock… tackle it today.
To learn more about buying stocks or other types of opportunities, visit the Investment Opportunities section of our site.
With the information you’ve just gained from our 5-Step Guide on How To Invest In Stocks, you now have the tools and ability to invest in stocks. Get started today and you’ll own a critical skill to building wealth that everyone should have.
Read Next: How to Trade Stocks for Beginners
About Andy Snyder
Andy Snyder is the founder of Manward Press, the nation’s premier source of unfiltered, unorthodox views on money and what it means for a free society. An American author, investor and serial entrepreneur, Andy cut his teeth at an esteemed financial firm with nearly $100 billion in assets under management. Andy and his ideas have been featured on Fox News, on countless radio stations, and in numerous print and online outlets. He’s been a keynote speaker and panelist at events all over the world, from four-star ballrooms to Senate hearing rooms. Today, Andy’s dissident thoughts on life, liberty and investing can be found in his popular daily newsletter, Manward Financial Digest.